Franchising, what it is, how it works and how to open a business

Money.it

2 February 2025 - 14:00

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Meaning and definition of franchising, an interesting solution for those who want to open a shop: here is a practical guide and some successful Italian examples.

Franchising, what it is, how it works and how to open a business

Anyone who intends to open a business will surely have heard of franchising, a formula that we could freely translate as "commercial affiliation". But perhaps not everyone knows how franchising works and what the requirements are to open a business of this type.

Let’s try to better understand what this term means exactly, why this formula is so widespread and some common and virtuous examples of companies that exploit the franchising mechanism for their business.

What does franchising mean: let’s give a definition

franchising is a business model that allows an entrepreneur (called franchisee or affiliate) to open a business using the brand, know-how and products of an already established company (franchisor or affiliator). This system is based on a contract between the two parties, which defines the rights and obligations of each, and allows the affiliate to take advantage of the notoriety and experience of the already established brand.

What is franchising in simple terms?

Imagine you want to open a coffee shop, but without starting from scratch. Instead of creating a brand, developing recipes and building a reputation, you can affiliate with an existing chain such as Starbucks or Lavazza. By paying an initial fee and a percentage of sales, you obtain the right to open a store with that brand, following the quality and management standards imposed by the company.

In other words, franchising consists of a commercial collaboration agreement between two entrepreneurs who are legally and economically independent.

Why is franchising popular? The main advantage is that it reduces the risks of starting the business. Using a well-known brand means attracting customers right from the opening, taking advantage of the reliability already acquired by the franchisor. However, it also involves some restrictions, as the franchisee must comply with the guidelines of the parent company.

Franchising: how does it work?

Technically speaking, the franchising contract, or commercial affiliation, consists of an atypical contract, that is, not directly regulated by the Civil Code.

It is true that franchising is a mechanism that is never found in the start-up phase of the franchisor’s activity. The franchisor, in fact, before developing his franchising has experimented with his marketing formula on the market, and from this experience - and from the goals achieved - has assimilated the know-how, which he will then pass on to the franchisee through ad hoc training. The affiliate will thus have the task of replicating the parent company’s activity, through consolidated procedures and methods.

Rights and duties of the parties

As we have seen, the affiliation or franchising agreement means that the parent company - manufacturer or distributor - gives a retailer/franchisee permission to sell goods or services of its brand under certain conditions. It is true that in this way the potential affiliate can count on the possibility of opening a business with a company that knows how to act to be successful in the market. And this is an undoubted initial advantage. This is why franchising is especially suitable for those who have never worked on their own and, therefore, do not have any experience either on the entrepreneurial level or on that of the individual activity to be carried out.

Thanks to the franchising contract, the franchisor will give the affiliate the possibility of also exploiting the parent company’s brand and will also provide periodic consultancy and training in the field. In this way, the entrepreneur - as mentioned - will be able to train on the already tested working methods and will be able to receive technical assistance, which is very important especially in the early stages of starting the business.

But the franchisee will consequently be obliged to respect some commercial standards and management models, in order to promote the quality and popularity of the brand. In practice, the parent company also requires a one-off payment to obtain the affiliation or the periodic payment of a sum, with a percentage of sales or a contribution for marketing campaigns.

However, it should not be forgotten that there is no relationship of subordination between the parties to the contract. In fact, we are faced with a commercial agreement. In other words, franchisees and franchisors are and remain legally and economically autonomous.

Key elements of franchising

Putting order among all the notions we have listed, we can summarize the key concepts of franchising in four essential elements.

1. The Franchise Agreement
The agreement is the main document that regulates the relationship between the franchisor and the franchisee. It specifies several essential elements:

  • entry fee: an initial sum that the franchisee pays to the franchisor to obtain the affiliation and the right to use the brand;
  • royalty: a periodic fee that can be calculated as a percentage of the turnover or as a fixed amount. This fee is used to cover the costs of the ongoing support offered by the franchisor;
  • duration and renewal clauses: franchising agreements have a pre-established duration, with renewal options, and clauses that regulate the conditions for termination.

2. Support and training
One of the most advantageous aspects of franchising is the support that the franchisor offers. This can include:

  • initial and ongoing training: to teach franchisees management, sales and customer service techniques in line with company standards;
  • Technical and Operational Support: The franchisor can assist with technical issues, update IT systems, and help with day-to-day operations.

3. Marketing and Brand Visibility
The franchisor regularly invests in national or regional advertising campaigns, increasing brand visibility and attracting customers to the franchisee. Many franchise companies require the franchisee to contribute to the company’s marketing fund, which provides access to advertising initiatives that a single store could hardly afford.

4. Quality Control
To maintain the brand’s reputation, the franchisor establishes strict quality control procedures. This ensures that the customer experience is consistent across all stores. Controls may include periodic visits, performance evaluations, and compliance with company standards, such as furnishings, uniforms, and product presentation methods.

The advantages of franchising depending on the type

In terms of advantages, it is clear that the franchising agreement is convenient for both parties. In fact:

  • the parent company has the possibility of expanding the distribution network of its products, increasing the awareness of the brand. And this without the costs of managing the stores, which remain a burden on the affiliate;
  • the entrepreneur, thanks to franchising, can sell products with an already known brand, sometimes even very prestigious. This can be the basis for a successful business activity, where all the indications provided by the parent company are respected.

In terms of the types of franchising, we basically have three. Here they are:

  • production franchising: the franchisor is an industrial company that produces its own goods and distributes them through its network of affiliates;
  • distribution franchising: in these cases, technically it is said that the franchisor acts as a purchasing center. In fact, these purchase large stocks of products from various manufacturers, thus obtaining a significant margin and purchasing power. Then they redistribute them to the affiliates to sell them. In short, the franchisor selects the suppliers and for the affiliate there is the concrete advantage represented by the fact of having a single interlocutor who has already carried out the selection of the products to sell;
  • service franchising: no products are distributed but services are offered, which can range across the most diverse areas. Let’s think for example of the travel or restaurant franchising sector.

Who benefits from opening a franchising business

Franchising is an ideal solution for those who:

  • want to reduce entrepreneurial risk: having a well-known brand increases the probability of success;
  • want continuous assistance: the franchisor offers support for the entire duration of the agreement;
  • have no experience in the sector: training and know-how reduce initial difficulties.

What to open in franchising: the most common high-yield stores

Opening a franchising business is an investment that can offer excellent returns, but not all sectors guarantee the same results. Let’s see together what are the types of stores and the sectors with the greatest earning potential and economic stability.

Food & Beverage

  • The restaurant sector, especially fast food and coffee shops, is among the most profitable for franchising activities. Brands such as McDonald’s, Burger King and Starbucks are extremely popular and attract a loyal customer base. Fast food chains benefit from a strong standardization of processes and simplified operational management, making the investment relatively safe and with stable profit margins. Furthermore, in tourist and metropolitan cities, these brands tend to generate high revenues thanks to their global notoriety.

Retail (clothing, cosmetics and objects)

  • The retail sector offers multiple possibilities for success, especially for clothing and cosmetics stores. Brands like Zara and Sephora have a strong appeal and a consolidated business model. Franchising retail in the fashion or beauty sector attracts a large and loyal clientele, particularly sensitive to the value of the brand. In addition, the cosmetics sector is constantly growing, driven by a growing demand for natural and sustainable products.

Personal services (beauty centers, gyms, laundries)

  • The personal services sector is expanding, thanks to a growing focus on wellness and body care. Brands like Anytime Fitness, Urban Laundry and beauty franchising offer a standardized format, with technical support for the management of services, and often have a loyal audience.

Real estate agencies

  • Real estate franchising agencies are a valid choice for those who want to work in the real estate sector with the support of a strong and recognized brand. These agencies offer a consolidated support network and advanced marketing tools, which facilitate the operational management and visibility of the agency.

3 examples of successful franchising

Obviously, the examples of successful franchising are countless: otherwise, the extreme diffusion of the mechanism in question, in a plurality of different commercial sectors, would not be explained. Let’s look together at 3 consolidated formulas that have allowed affiliates to obtain important entrepreneurial results and that have allowed the parent company to increase the amount of earnings.

McDonald’s Franchising

  • A benchmark in fast food, with more than 39,000 restaurants worldwide, it offers widespread support and a global marketing network.
  • A brand that needs no introduction: the company requires potential franchisees to have leadership skills, be under 49 years of age and be available to move around the area.

Old Wild West Franchising

  • Specializing in hamburgers and steakhouses, this chain born in Italy but also expanded abroad is expanding rapidly and attracting thanks to a western-themed atmosphere. Old Wild West represents a successful franchising formula. The potential franchisee must pay attention to the requirements indicated in the application form and to the costs of opening and managing the restaurant, which are clearly indicated on the official website.

Carrefour Franchising

  • The French giant offers various formats, from the small neighborhood store to the large supermarket, with a winning formula that responds to different market needs.
  • The training of the franchisee entrepreneur is guaranteed through management courses, in-store training and an online training platform. And the company guarantees the maximum profitability of the supermarket, through the use of ad hoc tools. Not only that: the franchisee is free - based on his experience, objectives and financial availability - to take over the management of an already active store or to open one of his own.

Original article published on Money.it Italy. Original title: Franchising, cos’è, come funziona e come aprire un’attività

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